Regulation & The Environment: Oil pipeline wars breaking out in Texas

Increasingly in Texas, the oil man and the farmer are definitely not friends. Local battles over pipeline construction and rights of way are increasingly finding their way into the courts. In this week’s Oilgram News column, Regulation & The Environment, Leslie Moore Mira spells out some of the issues.

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Oil lovers in Texas are encountering waves of resistance from property owners as a pipeline building spree unfolds to bring shale oil to market. While feisty is nothing new in the “Don’t Mess with Texas” state, a trickle of judicial decisions has galvanized property owners and could lead to upheaval for pipeline interests.

Until recently, pipeline companies have enjoyed virtual dominion over landowners when seeking easement parcels or property access. If they self-declare as a “common carrier” pipeline, pipeline companies become entitled to eminent domain claims against landowners. They acquire a common carrier status by stating so on a T-4 form filed with the Railroad Commission of Texas.

“The T-4 permit will stand unless challenged by court,” said Gaye Greever McElwain, a Railroad Commission spokeswoman. Reluctant to fight “big oil,” landowners argue that they have little recourse if they object to the terms of an agreement, while a pipeline company could likely prevail by moving to “condemnation” proceedings under eminent domain.

“When they have the club of eminent domain…the pipeline company is really dictating how people can use their property,” said Terri Hall of landowner advocacy group Texans Uniting for Freedom and Reform. Hall said her group represents 100,000 Texan supporters.

A ruling last year in the Texas Rice Land Partners v. Denbury Green Pipeline-Texas saga, a standoff between endowed agricultural interests versus endowed energy interests, has upended legal assumptions. The pipeline project runs from Donaldsonville, Louisiana to the Houston area and is designed to transport carbon dioxide, according to Denbury’s website. Texas Rice Land holds a stake in two tracts along the pipeline route, according to a court document.

The Texas Supreme Court said Denbury must prove its common carrier status. To qualify as a common carrier, “reasonable probability must exist, at or before the time common-carrier status is challenged, that the pipeline will serve the public by transporting [CO2] for customers who will either retain ownership of their [CO2] or sell it to parties other than the carrier,” the court ruled.

“A common carrier transporting gas for hire implies a customer other than the pipeline owner itself,” the court said. Denbury, citing ongoing litigation, declined to comment. Calls seeking comment from Texas Rice Land Partners were not returned.

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The court wants the state legislature to better define the parameters for “common carrier.” Texas’ House Committee on Land and Resource Management is expected to unveil this week “broad recommendations,” J.J. Garza, a chief of staff for Texas Representative Rene Oliveira, Democrat, said in a phone interview December 14. Oliveira oversees the land and resource committee, which is reviewing the matter.

“Industry is very concerned that we will end up with a wide range of interpretations. They don’t want landowners going to district court constantly…you would have a free-for-all,” Garza said. “The landowners don’t want to go to court—they’d have to hire attorneys and if they lose that’s a rather expensive proposition,” Garza said. “They want the state to verify a common carrier status.”

Landowners are cajoling state lawmakers to shift common carrier oversight to the State Office of Administrative Hearings. Unlike the Railroad Commission, which is supervised by elected commissioners who can take political donations, the office of hearings is staffed by civil servants, Garza said. The energy industry, meanwhile, is lobbying to have common carrier registration remain with the Railroad Commission.

“There are people advocating that no pipeline have eminent domain,” said James Mann, an Austin-based lawyer who represents members of the Texas Pipeline Association. “Certainly that would be a worst case scenario,” he said. “There’s no way for me to predict how things will turn out,” he said.

“If it’s impossible to have a mechanism to acquire right-of-way at fair market value, then anybody has a right to stop a project,” he said.

Observers say two industry catalysts have ticked off landowners in a state as famously pro-oil as it is pro-gun. Mann, the industry lawyer, estimates some 90,000 miles of new pipelines have been permitted in the past three years. First, frenetic Barnett Shale buildup in Fort Worth and other suburban pockets has created friction as residents contend with drilling rigs and oilfield equipment at home and in schoolyards. While most pipeline companies are “responsible,” some have given the impression they “didn’t have to pay heed to what the landowner wanted,” Garza said.

The second is TransCanada’s polarizing Keystone XL pipeline, which has united landowners and environmentalists alike. Landowner Mike Bishop this month won a favorable ruling from a judge temporarily halting Keystone XL construction on Bishop’s property. The same judge later “dissolved” the order, scoring a point for oil.